With investor-owned hospital companies waiting on the sidelines, Baylor Health Care System appears to have played keep-away with some of its hospitals.
Five of the Dallas-based not-for-profit system's 13 hospitals earlier this year changed their articles of incorporation within days after Baylor University said it was considering selling the entire system to an investor-owned chain for $1.2 billion.
The changes effectively barred the university and its regents from appointing the members of the five hospitals' governing boards. Instead, control of the hospitals was placed under an existing subsidiary of the healthcare system called Baylor Health Services.
"We did a corporate restructuring to defend ourselves," said Jennifer Coleman, vice president of public affairs at Baylor Health Care System.
Behind-the-scenes maneuvering by the healthcare system and its hospitals came to light in a federal lawsuit filed this month in U.S. District Court in Waco, Texas, by Baylor University against a hospital consultant the school believes has excessively billed it for services (June 9, p. 26).
"Baylor lost any control it previously had over five of the hospitals within the healthcare system when those hospitals amended their articles of incorporation," the suit states. "The loss of control over these hospitals frustrated the purpose of the (consulting) agreement and made performance of that agreement impracticable."
Nashville-based consultant Josh Nemzoff had been hired to evaluate the possibility of a sale of the system hospitals to a for-profit company, among other options.
The healthcare system changed its articles of incorporation within six days of Baylor University's Jan. 17 announcement that it was considering a sale to an investor-owned chain. Thus, the university said in its lawsuit that it wouldn't have had a system worth anywhere near $1.2 billion if the university had been successful in its attempts to sell.
The university has since ceded control of Baylor Health Care System to the system's board after a controversy erupted over which organization controlled the system (April 7, p. 33).
But the healthcare system denies it was using the community hospitals as pawns during the controversy.
"(The new bylaws were) just basically changing the (university) regents' power to appoint boards," Baylor's Coleman said. "There was a change so that the regents no longer had power of appointment over trustees at our community hospitals. It had nothing to do with a change in the assets."
The system wouldn't make public the articles of incorporation.
The five hospitals involved are Baylor Center for Restorative Care in Dallas; Baylor Institute for Rehabilitation in Dallas; Baylor Medical Center-Ellis County in Waxahachie, Texas; Baylor Medical Center at Grapevine, Texas; and Baylor Medical Center at Garland, Texas.
Several of those five hospitals, all of which are owned by the healthcare system, became a part of the system on "handshake deals" when Boone Powell Sr. was building the Baylor network, Coleman said. His son, Boone Powell Jr., is now president and chief executive officer of the healthcare system.
The system includes eight owned or leased hospitals and five affiliated hospitals. With 1,861 acute-care licensed beds, the system has $1.1 billion in assets and had $846 million in operating revenues last year.
Meanwhile, the university confirmed it is hoping to reach a settlement with Nemzoff, who said he was unaware of such an offer.
Baylor University filed a lawsuit against Nemzoff over a $4.2 million fee he claims the school owes him.
Nemzoff told the university's board of regents that the system would be worth as much as $1.2 billion. That figure was used to calculate Nemzoff's $4.2 million, or 0.35%, fee.
But the university said it was only looking at options, not committing to a sale.